By Eric Savitz

Bear Stearns Internet analyst Robert Peck today wrote a lengthy piece which contends Yahoo (YHOO) urgently needs to figure out a social networking strategy, “or risk being marginalized in some of their businesses.” He thinks Yahoo is going to have to buy or partner with one of the primary players. Peck says that Yahoo has held talks at various times with Facebook, Bebo, Friendster and MySpace, but that “when it comes down to it, we think the price tag is the ultimate factor for a transaction to materialize.”

Isn’t it always.

Peck goes on to to build a financial model for Facebook stretching out to the year 2016, then discounting it all back to the present to come up with a valuation. Peck sees the company generating $139.7 million in revenue this year, $357.6 million in 2008…and $6 billion in 2016, with $2.3 billion in EBITDA. He concludes that Facebook is worth “as much as $5-$6 billion.”

Sounds like a big number, except that it might not be enough to buy them; Facebook investor and director Peter Thiel recently asserted that for $10 billion, they would consider selling.

The risk to Yahoo, Peck contends, is doing nothing. He says there is evidence of something he calls “Ad Dollar Splintering,” going on, which is a fancy, upper-case-abusing way of saying that some ad dollars that formerly went to Internet portals is now ending up in the hands of the social networks.

There are 9 comments

AUGUST 1, 2007 3:15 P.M.

Harry wrote:

Eric
5-6 to 10 billion, great to see some financials associated with your posting, even though the number are huge. Yahoo should pick up Local.com (LOCM) so cheap now and have a good war chest on the patent front against Google. Would be great if you could speculate on your other LOCM blog about the potential sale. Seeking Alpha said Local is worth 100-200 million without the buyout hype, what do you think?

AUGUST 1, 2007 3:27 P.M.

Eric Savitz wrote:

The guy on Seeking Alpha who wrote that owns Local.com's stock; I'm not sure he is exactly an unbiased observer. I wouldn't be betting on a buyout.

AUGUST 1, 2007 3:39 P.M.

Harry wrote:

You are right, but does not discount the core business case. Without the buyout hype, the company is undervalued, the earnings and future profit forecast will show this and I think it will jump from 6 to 11-13 a share by Monday (maybe wishful thinking as a long but very realstic with the naked short positions and low float) Why don't you give us yourview on the pure valuation of Local.com- let's ignore all the partnership/buyout hype, just the balance sheet, revenue growth and future revenue streams from royalties/litigation cases on the patent front. Would be great to hear your financial analysis/predictions on where Local.com stock will be next week/over the medium and long term. thanks

AUGUST 1, 2007 3:54 P.M.

Eric Savitz wrote:

The big problem is, I have no clue what the patents are really worth; there is no way to make a rational estimate. They could be worth nothing. Or they could be worth a fortune. It is going o take some litigation to sort that out, I think, and lots of time.

AUGUST 1, 2007 4:05 P.M.

Harry wrote:

Eric, Fair enough, I agree that the patents will take time and could be worth a fortune, but I do not agree they could be worth nothing.
The market cap is too small and now they have more cash, if (or shall I say when) a big player (tech firm or hedge fund) steps up to the plate, the shares will skyrocket is such a frenzy that it will make that last run up to 13.74 look like a bump in the road. Hope it happens as a long, things will get very interesting tomorrow/Friday and next week with the earnings and growth conference.

AUGUST 1, 2007 4:30 P.M.

Patrick wrote:

They should do a meger of equals with Ebay.

Social networking is a fad that will eventually fade out.

AUGUST 1, 2007 9:50 P.M.

Will wrote:

Eric, do you think Yang & his gang just don't get it, or what? I own 900 shares of Yahoo, & cring at the money I have lost. It seems Yahoo's primary interest is insider trading to make themselves rich, & to hell with the shareholders. It simply makes no sense that they cannot turn themselves around. It should be clear that Semel & others brought them to these depths, yet he is still there with a 70+ million compensation package per year.

AUGUST 3, 2007 12:53 A.M.

Gene wrote:

Social Networking, the concept, is not a fad; it has been around since the beginning of computers and continues to evolve: Usenet -> BBS -> email -> Prodigy/AOL -> Geocities -> Friendster -> Myspace -> LinkedIn/Facebook/Twitter -> ?

Social Networking, the instances, are fads. Hence the extrapolation of Facebook revenue @ 6B in 2016 is asinine. By then, at least 10 different forms of media will have superceded Facebook.

Yahoo does need a Social Networking strategy. Buying what's hot right now is a poor one.

AUGUST 3, 2007 1:09 A.M.

Gene wrote:

> Yahoo does need a Social Networking strategy. Buying what's hot right now is a poor one.

Oh, and for a brief history lesson: In 1999 Yahoo acquired Geocities, the hot social networking site then, for $3.6B.

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.